'Token Burning' And Other Crypto Jargon Simplified

A new sector brings with it new jargon, and the crypto world is certainly no different. One phrase you’re likely to hear frequently is “token burning,” which no doubt evokes a myriad of various images.

In actuality, the concept of burning tokens is an incredibly smart move that largely benefits investors. Contrary to the traditional financial world — which increases in value when money is added — the crypto world operates in the opposite way. In the crypto world, there are a finite number of specific tokens available; when a proportion of these are purchased by investors, the total number of tokens available on the market decreases and, as a consequence, the value of each individual token may increase.

As all transactions can be tracked on the blockchain, it’s a very interesting way to generate investor value.

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It’s up to individual companies if, how and when they burn tokens.

In its simplest form, burning a token means making the token permanently unspendable. There are a few ways of doing this, such as sending the tokens to a bogus address (an address with no known private key) so that the token is no longer usable.

As an experiment, Eidoo decided that, following its initial coin offering (ICO), it would first burn any unsold tokens, and then burn more tokens once it began generating revenue.

To break down the token-burning process:

1) Phase One: Post-ICO

The Eidoo token sale ended on October 16, after selling 10,708,403 Eidoo tokens (EDO), or 82,372.33 ETH (the equivalent of $27.9 million).

The token sale hard cap was 20 million EDO, meaning that we offered ICO participants a total of 20 million tokens.

After the end of the token sale, as promised, we “burned” the unsold tokens. Thus our current total supply is 90,708,403 EDO (the entire initial amount was 100,000,000 EDO). Burning tokens at this point — immediately after our ICO — meant that the value of our token increased, as there were fewer available on the market.

2) Phase Two: Post-Rev Gen

Eidoo began generating revenue just under 2 months following the ICO, and we have reached nearly 140,000 downloads of the app that aims to make the buying, storing, selling and trading of cryptocurrency easy for a mainstream audience.

So how is Eidoo generating revenue? After the Eidoo token sale, many companies reached out to us to see how Eidoo could help them facilitate their own ICO, so we decided to provide this service to generate additional revenue. In response to this demand, Eidoo offered up the ICO Engine, which enables crypto startups to easily and safely conduct ICOs on our platform.

Since our ICO Engine launch on November 10, we’ve already helped organize a pre-sale for AidCoin and an ICO for ETHLend. To date, the AidCoin pre-sale has raised $4 million for its ERC20 tokens that will provide transparency in the nonprofit sector, allowing individuals to track donations on the AidChain public ledger. And ETHLend has raised more than $10 million so far via its ICO on Eidoo, in a bid to democratize lending on the blockchain with its new products and services.

Buy Back And Burn: Fueling A Cycle Of Appreciation

As part of Eidoo’s business plan (read more in our Ethereum Funding Informative Prospect), we will destroy 50% of the tokens earned from our service fees, including the fees we generate via our ICO Engine.

This “buy back and burn” system will help Eidoo decrease the total supply of tokens, and thus the number of tokens available on the market will decrease. The more the service is used, the more tokens will be destroyed: It’s a positive cycle of appreciation.

The net revenue from all the services linked to Eidoo will be collected in EDO tokens by a public smart contract, which will segment it as follows:

50% will represent the revenue flow for the companies involved in the Eidoo project that provide the added-value services;

50% will be a voucher for the service. The voucher will be deleted from the blockchain after its use, effectively forwarding these tokens to a burn address that doesn’t have a private key from which to move funds.

So when you see that a crypto company is using burning techniques to increase value, you’ll know it’s nothing to do with actual fire, but actually a clever way to reduce the number of tokens available on the open market, and thus increase the value of the token for investors. As all transactions can be tracked on the blockchain, it’s a very interesting way to generate investor value.